GATT Official Will Mediate Trade Standoff : Diplomacy: The world’s main trade body will make an attempt to end the U.S.-EC rift over agricultural subsidies.

The world’s main trade body, meeting in emergency session here on Tuesday, empowered a senior official to mediate between the European Community and the United States to avoid a full-scale trade war over agricultural subsidies.

The 105-nation signatory body of the General Agreement on Tariffs and Trade did not take a side in the U.S.-European dispute over subsidies paid by EC members to oil-seed farmers. The Bush Administration contends that the subsidies are unfair to American farmers, costing them $1 billion a year in lost trade.

In an effort to break the stalemate, the Geneva-based trade body authorized GATT Director General Arthur Dunkel to begin a round of shuttle diplomacy between Washington and the EC capital of Brussels to seek a solution to the crisis, which threatens to abort the ongoing Uruguay Round of negotiations for a new world trade agreement.

American reaction to the GATT initiative was subdued. “It can’t hurt,” said Rufus Yerxa, U.S. trade representative in Geneva, “but it is difficult to reach a trade agreement without more flexibility on the part of the Europeans.”

France, where the government is under pressure from a vociferous farmers’ lobby to maintain subsidies on sunflower, soybean and rapeseed production, has led European opposition to the United States in the dispute.

But the French position appeared to be softening on Tuesday under pressure from a powerful French wine and spirits export association.

In a confidential statement to its members, obtained by The Times, the Federation of Wine and Spirits Exporters of France accused the French government of conducting a “confrontational policy” in negotiations with the United States. Federation officials said the French government’s intransigent stand threatened to hurt the French wine industry, which it said accounts for more than $10 billion in the French economy, compared to slightly more than $2 billion for the French oil-seed growers.

Wine exporters were the main target of sanctions imposed on $300 million in European products by the U.S. government on Thursday. The sanctions call for a 200% tariff on white wines and other items.

The first sign of a softening of the French position came Monday when President Francois Mitterrand and Foreign Minister Roland Dumas both made statements taking a moderate tone on the issue. In a television interview, Mitterrand warned of the economic risks at stake if France becomes isolated on the trade issue.

“I want to reach an agreement,” Mitterrand said. “I want it even more so because the isolation of a country like France, if it were to occur, would be very dangerous. We must not get to that point.” Mitterrand characterized European retaliatory tariffs, proposed by some members of the French government, as a policy of last resort that should be avoided.

U.S. officials attending the GATT meeting reacted cautiously to the softened tone of the French rhetoric. “We applied the sanctions to maximize the impact on France,” said one official. “It looks like we got their attention.”

Times staff writer Joel Havemann in Brussels contributed to this report.